How Can We Best Learn from Failure?

“Neuroscientists have long understood that the brain can rewire itself in response to experience – a phenomenon known as neuroplasticity. But until recently, they didn’t know what causes gray matter to become plastic, that is, to begin changing. Breakthrough research by a team at MIT’s Picower Institute for Learning and Memory, led by Earl Miller has documented one type of environmental feedback that triggers plasticity - Success. Equally important and somewhat surprising - its opposite, Failure, has no impact,” (cited in Berinato, S., 2010, p.28).

The research by Earl Miller and his team at MIT showed that “neutrons in the prefrontal cortex and striatum, where the brain tracks success and failure, sharpened their tuning after success. What’s more is that those changes lingered for several seconds, making brain activity more efficient the next time the same task was completed. Thereafter, each success was processed more efficiently.”

But most importantly Miller found that “after failure, there was little change in brain activity, meaning that the brain didn’t store any information about what went wrong, to use the next time around.”

So Miller’s research shows that “on a neurological level, success is actually a lot more informative than failure. If you get a reward, the brain remembers what it did right. But with failure (unless there is a clear negative consequence, like the pain a child feels when they touch a hot stove), then the brain isn’t sure what to store, so it doesn’t change at all,” (cited in Berinato, S., 2010, p.28).

Miller’s research is fascinating in that it shows that there has to be a consequence to failure for the brain to react. This can give an insight to parents, teachers, managers, and even law makers, as to why some individuals don’t seem to learn from their mistakes. At the business level a lot more research will have to be completed before we can fully understand the complexities of the brain and how to maximise the brains ability to learn from failure.

In general many people don’t seem to like talking about failure, to the extent that some people remove the word from their vocabulary completely – not wanting to talk about failure, but preferring to talk about opportunities or other ‘positively framed’ words. This is especially true in the parent child relationship, yet this research by MIT may prove that this positive reframing may be the worst thing you can do and in fact hinder learning from mistakes. It might show that highlighting and discussing failure allows the brain to ‘understand’ the mistake and to learn from it – similar to putting your hand on a hot stove.

This research should be a reminder to organisations that unless the employee can ‘see and feel’ a consequence to ‘failure in a task,’ however slight that failure might be, it cannot be assumed that the individual has learnt from the mistake - meaning that failed tasks should be discussed and formally reviewed so that ‘real’ lessons can be learnt. We cannot assume anymore that simply saying, “okay but don’t make that mistake again” will in fact have any impact on the individual, regardless of age or position.

Understanding the complex brain functions used in business requires the ability to record activity in several regions of the brain simultaneously, and Miller’s team is being credited with pushing the technology further than any other research group. Miller has collected data from three regions of the brain at the same time with as many as fifty electrodes. That number will increase, as neurologists use more and more electrodes to record brain activity, they will gain much more insight into decision making and attention. In a report in The New Scientist, autumn 2009, Miller’s research was cited as “the tool of the future.”

So, as Scott Berinato explains, the lesson is to know that the brain will learn from success and hence you don’t need to dwell on it too much from a learning perspective. However you do need to pay much more attention to failures and challenge yourself to understand why you failed, if you want to ensure learning for the next time.

This fascinating research may help us to further develop our business talent, accepting that failure does happen and learning how best to deal with it.

References:

Berinato, S. (2010). Success Gets into Your Head – and Changes It. Harvard Business Review. Vol. 88, Issue. 1, p.28.

Innovation and Implementation: Have You Got the Balance Right?

Whether you admire him or not, Richard Branson is a unique entrepreneur who ensures that he has the right management team to implement his ideas; and where Virgin’s success is undoubtedly due to his own ability to ‘innovate’ and consistently develop and deliver on a brand promise; as well as his willingness to be a central part of the brands publicity.

Branson has firmly held views on management, where “good managers are worth their weight in gold: they are the people who organise and handle the pressures of an ongoing business – the glue that binds the business together. Entrepreneurs have the dynamism to get something started – they create opportunities that others don’t necessarily see and have the guts to give it a go, but are not necessarily good at the nuts and bolts of running a business,” (cited in Altman, W, 2009, p.81).

The problem that many organisations encounter is having the correct balance of innovators and implementers within their leadership teams; where each individual is consciously aware of their own specific strengths and those of the team. One of the biggest failings of many great ideas is when the innovator isn’t honest enough to see that they don’t have the skills themselves to implement the idea successfully. Often these individuals will continue on a path of self-destruction, knowing the ‘idea’ is sound, but without being able to recognise their own failings in implementation, until it is too late.

As Wilf Altman highlights, when it comes to the Virgin Group and Richard Branson, “purists among top business school academics and senior executives might argue that no single group can run railways and airlines, mobiles and media, finance, health clubs, and spaceships and musical businesses. It goes against all proven arguments in sticking to core businesses. Diversification on this scale has rarely worked; yet Richard Branson has proved the opposite can be true,” (p.81).

There are some reports that he’s a tough business man, and ruthless with investors; yet I’m not sure why this would surprise people. He has had individuals and organisations wanting him to fail since he started the Virgin phenomenon 37 years ago. The lengths British Airways were prepared to go to in an attempt to destroy Virgin Atlantic is a good case in point.

What’s unique about the Branson-Virgin empire is that it is organised into about three hundred limited companies, creating a branded group of separate, individual organisations. Although as a combined entity the Virgin Group is the largest group of private organisations in Europe, each individual organisation is relatively small in its sector.

It hasn’t all been about success for Branson and he’s had his problems like any other entrepreneur and innovator;

1) The Virgin Media ‘disagreement’ with BSkyB;
2) Its £4.3 billion debt (payment of which has been deferred to 2012);
3) Starting and failing in a drinks war with Coca-Coal (though it could be argued that the publicity helped Virgin soft drinks in the US);
4) The failure of Virgin Clothes;
5) The unfulfilled dream of taking over EMI;
6) The failed efforts to save Concorde; and
7) The failed bid for Northern Rock.

Even with the few failures, the Virgin record (no pun intended) speaks volumes of its own success, where Branson leads from the front and believes “business requires astute decision making, leadership, discipline and innovation if you want to turn entrepreneurial ideas into outstanding business,” (cited in Altman, W, 2009, p. 81).

So the question must be: how good is your organisations mix of innovators and implementers; and do you know with certain which skills reside where? – Since you’ll need both sets of skills to be sure of optimising your future sustainable growth.

As a leader you need to be able to recognise both of these unique talents and manage them appropriately; and as an individual you need to recognise and embrace your core strengths as you are unlikely to be good at both. Believing you have both sets of skills could just be the equation that ensures you self-destruct your own career.

References

Altman, W. (2009). Branson: The Global Brand Builder. Engineering & Technology, Vol. 4, Issue 2, p.80-81.

When Does the Quest for Profit Become Greed?

Patrick O’Rourke, the American journalist and novelist wrote; “if we're looking for the source of our troubles, we shouldn't test people for drugs, we should test them for stupidity, ignorance, greed and love of power”.

So at what point does making profit become greed – or doesn’t it? Organisations need to make profit, year on year, not just for their shareholders, but so they can invest in their futures and create employment for their communities. That has to be good – so when could it become bad?

Even basic economic theory states that organisations charge a price for a product or service that the consumer accepts, based on supply and demand; otherwise they wouldn’t sell anything and hence wouldn’t make profit. So if significant profits are made it’s because customers are happy with the value for money they received for the product or service.

Yet there is a negative connotation with excessive profit, which in today’s world is perceived by many to be nothing more than self-indulgent greed; where excessive profits are not used for organisational growth, but for ‘rewarding’ the few at the expense of the masses - but who defines 'excessive'? The sole concentration on shareholder value, for example, has been widely criticised by academics and others, particularly after the financial meltdown of 2009. While a focus on shareholder value can benefit the owners of a corporation financially, it does not provide a clear measure of social issues like employment, environmental issues, or ethical business practices. A management decision can maximise shareholder value while lowering the welfare of third parties.

Margaret Wheatley, the author and speaker, stated that; “in our daily life, we encounter people who are angry, deceitful, and intent only on satisfying their own needs. There is so much anger, distrust, greed, and pettiness that we are losing our capacity to work well together”.

Adam Smith, the Economist, believed that markets and profitability took care of themselves; where he first described the ‘invisible hand’ theory, also known as the invisible hand of the market, which is the term economists use to describe the self-regulating nature of the marketplace.

The theory of the ‘invisible hand’ states that if each consumer is allowed to choose freely what to buy and each producer is allowed to choose freely what to sell and how to produce it, the market will settle on a product distribution and prices that are beneficial to all the individual members of a community, and hence to the community as a whole. The reason for this is that self-interest drives actors to beneficial behavior. Efficient methods of production are adopted to maximise profits. Low prices are charged to maximise revenue through gain in market share by undercutting competitors. Investors invest in those industries most urgently needed to maximise returns, and withdraw capital from those less efficient in creating value. Students prepare for the most needed (and therefore most remunerative) careers. All these effects take place dynamically and automatically.

It also works as a balancing mechanism. For example, the inhabitants of a poor country will be willing to work very cheaply, so entrepreneurs can make great profits by building factories in poor countries. Because they increase the demand for labor, they will increase its price; further, because the new producers also become consumers, local businesses must hire more people to provide the things they want to consume. As this process continues, the labor prices eventually rise to the point where there is no advantage for the foreign countries doing business in the formerly poor country. Overall, this mechanism causes the local economy to function on its own.

In respect of the US, Barak Obama said, “we didn't become the most prosperous country in the world just by rewarding greed and recklessness. We didn't come this far by letting the special interests run wild. We didn't do it just by gambling and chasing paper profits on Wall Street. We built this country by making things, by producing goods we could sell.”

So, in theory, free market economics ensures a fair and reasonable accumulation of profit, which is used to finance growth and offset risk. So if this is true, why does there appear to be so much anger from people from both first world and third world countries – as the rich get richer and the poor get poorer. The economics seem sound – but only if they are applied correctly, which means reinvesting in the organisation and rewarding staff appropriately – but, if the profits are pocketed by the few, how does this equate to creating fair value and fair distribution of wealth.

So at what point does 'profit' equate to 'greed'? Maybe it’s time to go back to basics……...

How Well Do You Know Your Customer?

“Despite all the money invested to promote loyalty among high-value customers, it is increasingly elusive in almost every industry,” say Stephanie Coyles and Timothy Gokey after completing a two year study of customers approach to purchasing decisions and ‘loyalty’ to organisations from 16 industries, covering a diverse range of products and services, from airlines to consumer products, (McKinsey Quarterly, 2002, p.81).

They found that managing migration, in respect of customers who spend more, as well as customers who spend less, was a crucial next step in understanding customer behaviour. They found, in fact, that many more customers change their spending behaviour, leading to a more significant impact on organisational performance than those customers who ‘defected’ to competitors.

Coyles and Gokey found that “managing migration not only gives companies an early chance to stem the downward course before their customers bolt entirely but also helps them influence upward migration earlier.” The also found that “by learning to understand why customers exhibit different degrees of loyalty and combining that knowledge with data on current spending patterns, companies can develop loyalty profiles that define and quantify six customer segments,” (p.82-83).

Three of the key segments are related to customer loyalty profiles and the other three to downward migrators.

The three loyalty profiles are;

1) Emotive customers are the most loyal, feeling strongly that their current purchases are right for them and that their chosen product is the best, they rarely assess purchasing decisions. Coyles and Gokey’s research showed that emotive customers generally spend more than those who deliberate over purchases, and hence, are a primary focus for organisations and their marketing efforts;

2) Inertial customers rarely assess their purchases, but unlike emotive customers their inaction results from high switching costs or lack of involvement with products. Utility and life insurance companies are good examples of this segment. Also they noted that these customers aren’t prone to spend more or less than they currently do;

3) Deliberators are on average the largest customer segment, representing 40% of all customers across all industries. However the rewards from influencing deliberators can be twice as high as the other two segments, above. Deliberators frequently reassess their purchases by criteria such as products; price and performance and the ease of doing business with an organisation.

For the other three segments, Coyles and Gokey found that the downward migrators have one of three reasons for spending less;

1) Their lifestyle has changed (for example, having lost a job or having a baby);

2) They have developed new needs that the company isn’t meeting; as they continually reassess their options and have found a better one; or

3) They are actively dissatisfied, often because of a single bad experience.

Coyles and Gokey highlight how “although changing needs are often dismissed as uncontrollable, our work shows that they can be addressed, especially if a company invests in a new product or channel. Meeting these new needs is a smaller but relevant part of the overall loyalty opportunity,” (p.85).

It’s also been shown that loyalty profiles differ across industry sectors, and that each industry has an average behaviour pattern that influences customer decisions. Where these patterns are generally determined by five structural factors;

1) How often purchases are made;
2) The frequency of other kinds of interaction (e.g. service calls);
3) The emotional or financial importance of a purchase;
4) The degree of differentiation among competitor offerings; and
5) The ease of ‘switching.’

Coyles and Gokey’s research adds a third dimension to developing specific customer-centric strategies. Most customer profiles analyse the product or service in relation to the industry and the micro target-market segmentations. Now organisations can develop detailed three dimensional customer profiles for their products or services, in relation to the industry segment, the appropriate target markets, and their related loyalty or migratory segment. This allows organisations greater clarity and focus in developing effective customer-centric micro-strategies that will improve customer relations and loyalty, increase sales, and critically ensure that the marketing budget is spent in the most appropriate three dimensional quadrants.


References:

Coyles, S. and Gokey, T.C. (2002). Customer retention is not enough. The McKinsey Quarterly, No.2, p.80-89.